Legislation

A Brief History of Key Small Business Acts

The Reconstruction Finance Corporation (RFC) was created by President Herbert Hoover in 1932 to alleviate the financial crisis of the Great Depression. The RFC was a federal lending program for all businesses hurt by the Depression, large and small.

Congress has been fostering fair treatment of small business since 1941 with the establishment of the Select Committee on Small Business. The basis of the Small Business Program was to foster free competition, which is basic to the economic well-being and security of the nation. This status cannot be achieved without the potential of small businesses being encouraged and developed. Contracting with these firms strengthens the economy, generates competition, lowers overall costs, creates innovations, provides more jobs than any other sector and enhances good business practices.

Concern for small business intensified during World War II, when large industries beefed up production to accommodate wartime defense contracts and smaller businesses were left unable to compete. To help small business participate in war production and give them financial viability, Congress created the Smaller War Plants Corporation (SWPC) in 1942. The SWPC provided direct loans to private entrepreneurs, encouraged large financial institutions to make credit available to small enterprises, and advocated small business interests to federal procurement agencies and big businesses. The SWPC was dissolved after the war and its lending and contract powers were handed over to the RFC.

In the Armed Services Procurement Act of 1947 Congress declared: "a fair proportion of the total Federal purchases and contracts for supplies and services for the Government shall be placed with small business concerns."

Congress created another wartime organization to handle small business concerns during the Korean War, this time called the Small Defense Plants Administration (SDPA). Its functions were similar to those of the SWPC, except that ultimate lending authority was retained by the RFC. The SDPA certified small businesses to the RFC when it had determined the businesses to be competent to perform the work of government contracts.

The Small Business Act of 1953 was one of the first national policy commitments to small business concerns. The Small Business Act's purpose was to concentrate exclusively on helping to solve the myriad of problems the small business community was facing. The Small Business Act stated that the government must help develop small businesses in order to maintain a full and free competitive enterprise system. This is basic to the economic well-being and security of the nation. The Act stated that a fair proportion of government prime contracts and subcontracts be placed with small business concerns.

The Small Business Act of 1958 (P.L. 85-536) enhanced the federal government's commitment to small businesses. Section 201 of the Act stated that the government “should aid, counsel, assist and protect insofar as is possible the interests of small business concerns in order to preserve free competitive enterprise, to ensure that a fair proportion of the total purchases and contracts for supplies and services for the government be placed with small business enterprises, and to maintain and strengthen the overall economy of the nation.” The Act amended the original Small Business Act by creating the Small Business Administration (SBA). The SBA is an independent agency within the executive branch created to carry out the provisions of the Act. Public Law 85-536 authorized SBA to enter into contracts with federal agencies for the procurement of equipment, supplies and services for the government. The SBA would then subcontract the contracts to socially and economically disadvantaged small business concerns under Section 8(a).

The Minority Business Enterprise Program (Executive Order 11458 and Executive Order 11625) was created as a result of exclusion of individuals on the basis of their gender or race. This program is viewed as an effort to open the doors of education, employment and business development opportunities to qualified individuals who happen to be a member of groups experiencing longstanding discrimination. President Richard Nixon signed Executive Order 11458 in 1969, which prescribed arrangements for developing and coordinating a National Program for Minority Business Enterprise. In 1971, President Nixon signed Executive Order 11625, which outlined essential government actions for developing a national program to assist minority contractors in becoming self-sufficient and competitive. A significant amount of DoD involvement was directed at the awarding of contracts to the SBA under the Section 8(a) program using both sole-source and competitive 8(a) set-asides.

An amendment to the Small Business Investment Act of 1958 and the Small Business Act of 1958 (P.L. 95-507), enacted in 1978, made major revisions to the Small Business Act. P.L. 95-507 required federal agencies to establish small business goals and explain to Congress when goals were not met. The law reserved all awards under $25,000 for small business and established the 8(a) program. P.L. 95-507 established preferential procurement goals for participation by small businesses, small disadvantaged firms, 8(a) and small women-owned concerns in federal contracting programs. The goals are forwarded to the SBA on an annual fiscal year basis for approval or negotiation.

President Jimmy Carter signed Executive Order 12138 in 1979 in response to the findings of the Interagency Task Force on Women Business Owners and congressional findings that recognized the significant role that small business and women entrepreneurs can play in promoting full employment and balances growth in our economy; the many obstacles facing women entrepreneurs; and the need to aid and stimulate women's business enterprise. Executive Order 12138 created the National Women's Business Enterprise Policy that prescribed arrangements for developing, coordinating and implementing a national program for women's business enterprise establishing the Woman-Owned Business Program. The Order directed all federal agencies to: (1) facilitate, preserve and strengthen women's business enterprise and to ensure full participation by women in the free enterprise system; (2) take affirmative action in support of women's business enterprises and (3) extend federal financial assistance to programs or activities in support of women's business enterprises. Financial assistance means assistance extended by way of grant, cooperative agreement, loan or contract other than a contract of insurance or guaranty.

The Small Business Innovation Development Act of 1982 (P.L. 97-219) established the Small Business Innovation Research (SBIR) program. The law amended the Small Business Act to strengthen the role of the small, innovative firms in federally funded research and development and to use federal research and development as a base for technological innovation to meet agency needs and contribute to the growth and strength of the nation's economy.

Section 2017 of the National Defense Authorization Act for Fiscal Year 1987 (P.L. 99-661) established the Small Disadvantaged Business (SDB) program and expanded the government's commitment to SDBs with emphasis on contracting with Historically Black Colleges and Universities/Minority Institutions (HBCU/MIs). PL 99-661 established a 5 percent goal for contract awards to SDBs and a 5 percent goal for contract awards of its higher educational institutions contract dollars to HBCU/MIs throughout DoD and provided for a 10 percent evaluation preference to those SDBs competing in full-and-open solicitations.

P.L. 100-442, enacted in 1988, authorized an Indian Incentive Program to encourage contractors to use Indian organizations and Indian-owned economic enterprises as subcontractors. The act does so by permitting an incentive payment to the contractor "equal to 5% of the amount paid to a subcontractor in performing the contract, if the contract so authorizes and the subcontractor is an Indian organization or Indian-owned economic enterprise."

The Business Opportunity Development Reform Act of 1988 (P.L. 100-656) amended the Small Business Act to place new emphasis on acquisition planning. The law established the Small Business Competitiveness Demonstration Program that: measures awards to Emerging Small Businesses, tests unrestricted competition in certain designated industry categories and enhances small business participation in targeted industry categories. Public Law 100-656 also requires federal agencies having procurement awards exceeding $50 million in any fiscal year (FY) to prepare a Forecast of Contract Opportunities for small business (SB) and small disadvantaged business (SDB) firms with forecast being made available to SBs and SDBs upon request and requires a liquidated-damages clause in contracts having small and small disadvantaged subcontracting plans which would result in paying of damages upon a finding that a prime contractor has failed to make a good faith effort to comply with the goals set forth in subcontracting plans. The program was to end September 1997 but was re-authorized in Section 401 of the SBA's Reauthorization Act of 1997 making the program permanent.

Section 831 of the National Defense Authorization Act for Fiscal Year 1991 (P.L. 101-510), passed in 1992, established a pilot DoD Mentor-Protégé program. The purpose of the Program is to provide incentives for DoD contractors to assist SDBs, increase SDB participation as subcontractors and suppliers under DoD contracts and foster establishment of long-term business relationships between protégé firms and SDB contractors.

The Small Business Technology Transfer Act 0f 1992 (P.L. 102-564, Title II) established the Small Business Technical Transfer (STTR) pilot program. The law amended the Small Business Act by creating, for the first time, an effective vehicle for moving ideas from our nation's research institutions to the market, where they can benefit both private sector and military customers.

The Federal Acquisition Streamlining Act of 1994 (P.L. 103-355) was, enacted in 1994, combines several acquisition reform initiatives. Many of the reforms in the Act represent significant changes in how companies will be doing business with the federal government. FASA created the Federal Acquisition Computer Network (FACNET), which allows small businesses easier and more efficient access to Government contract opportunities all over the country. FASA replaced the term "small purchases" and established "micro-purchases" for acquisitions worth $2,500 or less and established a "simplified acquisition" threshold for small purchases from $25,000 to $100,000 setting the automatic Small Business Reservation at $2,500 to $100,000. Section 7106 of Public Law 103-355 established a government-wide goal for WOSB concerns at 5 percent of the total value of all prime contract and subcontract awards for each fiscal year.

The Small Business Administration Reauthorization, Section 304 and Amendments Act of 1994 (P.L. 103-403) authorized the SBA Administrator to establish and carry out a pilot program for very small business concerns. The pilot was extended by the Small Business Reauthorization Act of 1997. The Act defines a very small business concern as one that has 15 or fewer employees together with average annual receipts that do not exceed $1 million. The purpose of this pilot program is to improve access to federal government contract opportunities for concerns that are substantially below SBA's size standards by reserving certain procurements for competition among such Very Small Business concerns.

A lawsuit filed by Adarand Constructors Inc. in 1990 alleged that the award for a guardrail subcontract was unlawfully set-aside based on race. In 1995, a U.S. Supreme Court decision stated that the use of racial classifications for federal affirmative action programs must meet a "strict scrutiny" test and remanded the case back to lower courts. DoD's response was the suspension of SDB set-asides.

The Small Business Reauthorization Act of 1997 (P.L. 105-135) provides federal contracting assistance for qualified small business concerns located in Historically Underutilized Business Zones in an effort to increase employment opportunities and investment in those areas. The Act requires a 3 percent HUBZone small business goal to be phased in over five years beginning with 1 percent of prime contract awards to be awarded to such firms in fiscal year 1999 and at least 35 percent of the concern's employees must reside in a HUBZone. The Act increased the overall government-wide procurement goal for small business from 20 percent to 23 percent. In addition, the Act required prime contractors to establish goals for subcontracts with HUBZone small businesses. Further, the statute required SBA to certify HUBZone small business concerns and maintain a list of all qualified firms. Therefore, agencies and prime contractors may not rely on self-certification to determine the status of HUBZone small business concerns.

The Veterans Entrepreneurship and Small Business Development Act of 1999 (P.L. 106-50) established a government-wide goal of 3 percent for service-disabled, veteran-owned small businesses for prime contracts and requires separate subcontracting goals of 3 percent for veteran-owned small business and service-disabled, veteran-owned small businesses. The Act allows service-disabled veterans to self-certify their status.

The Small Business Reauthorization Act Of 2000 (P.L. 106-554) authorizes Women-Owned Small Business (WOSB) set-asides (permissive, not mandatory) for requirements in an industry where WOSBs are substantially underrepresented.

13 CFR 124.506(b) (FAR 19.805-1(b)(2)(revised as of January 1, 2001) exempts an Alaska Native Corporation (ANC) subsidiary/Indian Tribal 8(a) companies from the competitive threshold limitation of $3 million for services contracts and $5 million for manufacturing contracts if the SBA has not accepted the requirement into the 8(a) BD program as a competitive procurement.

13 CFR 126.613 (FAR 19.1307)(revised as of January 1, 2001) states that where a Contracting Officer will award a contract on the basis of full-and-open competition, the Contracting Officer must deem the price offered by a qualified HUBZone-certified small business to be lower than the price offered by another offeror (other than another small business concern) if the price offered by the qualified HUBZone-certified small business is not more than 10 percent higher than the price offered by the otherwise lowest, responsive and responsible offeror.

Section 807 of the National Defense Authorization Act for Fiscal Year 2001 (P.L. 106-398) expands the DoD mentor-protégé program to include Women-Owned Small Businesses. The Act also clarifies that business concerns owned and controlled by an Indian tribe or a Native Hawaiian organization are eligible to participate as protégé firms in DoD’s Mentor Protégé program.